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Look at the ROI
April 22, 2008

Almost everywhere you turn, the economic news is grim. But when the going gets tough, the best companies often look for ways to improve their operations to save money today, and position themselves to take market share when things rebound.

With that in mind, I asked three supply chain analysts for the kinds of projects they think can deliver an ROI and competitive advantage in a tough economy: Steve Banker, service director, supply chain management for ARC Advisory Group; Greg Aimi, director of supply chain research, for AMR Research; and Ian Hobkirk, senior analyst, supply chain execution, Aberdeen Group.

Look at the ROI

“For me, any project always comes down to the ROI,” says ARC’s Banker.

The simplest way to measure ROI is to look at the payback period, the shorter the better. “The people who get the quickest paybacks are those in paper-driven warehouses who add bar coding, wireless scanning, and a very inexpensive WMS for the first time,” says Banker. “In that scenario, you can get an investment that pays for itself very quickly.” That payback comes from better control of your inventory, Banker says. Your order fill rate goes up, and you buy less redundant inventory because you know what you have on the shelves.

At the other end of the spectrum, operators running more sophisticated facilities may want to look for projects that can lower their costs over time and improve their position in the marketplace. “The best example of that kind of project comes from retailers who are getting their vendors to send them advance ship notifications (ASNs) that allow them to cross-dock product through their warehouse to the stores, with very little inventory going to storage.” Those kinds of solutions may take longer to pay for themselves, but they can improve a company’s position with its customers in the marketplace.

Look at the network

With transportation costs spiraling out of control, now is the time to re-evaluate your network, says AMR Research’s Aimi. That’s the location of your suppliers, distribution centers, transportation lanes and transportation modes.

“The best companies understand that their legacy networks were probably put in place years ago,” says Aimi. “They may still be getting gains from fine-tuning an old engine, but what they really need is a better engine.”

Those companies are turning to network modeling and simulation software tools to gain an understanding of their total landed costs. Network modeling tools allow them to create a digital model of their supply chain; simulation tools allow them to put it to the test, by running different scenarios with different constraints like varying the location of a distribution center, increasing volume for peak season, or adjusting for an increase in fuel prices.

Since most companies don’t have the expertise or software systems in-house to do that work, they often turn to third party supply chain software providers with network design and simulation tools, like Chainalytics, i2 Technologies, LLamasoft, and JDA Software.

Another alternative is to use third party logistics providers that offer network design as a service. “3PLs can also get new, strategically-located facilities up and running with a limited capital outlay by an end user,” says Aimi.

Bridge the gaps

Aberdeen’s Hobkirk thinks a slowdown is a great time to step back and do a gap analysis about where you are versus where you want to be. One place to start is with a WMS strategy.

“Companies that don’t have a WMS end up throwing labor and space at their problems,” says Hobkirk. “I’d urge them to look at getting an on-demand WMS to get more orders out the door without increasing payroll.”

Hobkirk urges companies that have a WMS to turn on some of those switches they have yet to use. “I would explore ways to improve picking, replenishment For those that have a WMS, improvement picking, packaging and replenishment more efficient by using features like wave and batch picking,” says Hobkirk. “You’ll gain labor efficiency and get more orders out the door faster without sacrificing accuracy.”

Posted by Bob Trebilcock on April 22, 2008 | Comments (0)